Income Tax Appellate Tribunal - Ahmedabad
D.B. Corp.Limited,, Ahmedabad vs The Cit, A'Bad-I, Ahmedabad on 23 March, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "B" BENCH AHMEDABAD
BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER,
AND SHRI S. S. GODARA, JUDICIAL MEMBER.
ITA Nos. 2373/Ahd/2011 & 1088/Ahd/2014
(Assessment Years: 2008-09 & 2006-07)
D. B. Corp Limited,
280, Sarkhej Gandhinagar
Hihway, Nr. YMCA Club,
Makarba, Ahmedabad 380051 Appellant
Vs.
Additional Commissioner of Income-tax
Range-1, Ahmedabad
&
Commissioner of Income Tax, Ahmedabad-I Respondent
PAN: AACCM57726
आवेदक क ओर से/By Assessee : Shri Dhinal Shah, A.R.
राज व क ओर से/By Revenue : Shri James Kurian, Sr. D.R.
सन
ु वाई क तार ख/Date of Hearing : 08.03.2017
घोषणा क तार ख/Date of
Pronouncement : 23.03.2017
ORDER
PER S. S. GODARA, JUDICIAL MEMBER
These two assessee's appeals for assessment years 2008-09 & 2006-07 arise against the CIT(A)-VI, Ahmedabad & the CIT-I, Ahmedabad's orders dated 25.07.2011 & 21.02.2014, in proceedings u/s.143(3) and Section 263 of the Income Tax Act, 1961, in short ' the Act'; respectively.
ITA Nos. 2373/Ahd/11 & 1088/Ahd/14 (D. B. Corp. Ltd.)A.Y. 2008-09 & 2006-07 -2- We proceed appealwise for the sake of convenience and brevity.
2. The assessee's former appeal ITA No.2373/Ahd/2011 raises four substantive grounds. Its first substantive ground pleads that the CIT(A) has erred in upholding disallowance of Rs.49,62,875/- as made by the Assessing Officer pertaining to its depreciation claim on purchase of business rights / intangible assets transferred from M/s. India Info.Com. It emerges that both the lower authorities refer to their respective findings in preceding assessment year 2007-08 to conclude that assessee's purchase transaction hereinabove from the very entity is not genuine.
3. We notice at the outset that the assessee had filed ITA No.1113/Ahd/2011 before this tribunal challenging the very disallowance in assessment year 2007-08. A co-ordinate bench decided the said issue against the Revenue by observing as follows:
"5. In the light of various case-laws relied upon by the ld.counsel for the assessee, we are of the considered view that the depreciation on goodwill is allowable. The objections of authorities below are not founded on sound legal principles. The authorities have misconstrued the provisions of section 32 of the Act, while rejecting the claim of the assessee. In the case in hand, the authorities below have doubted the transactions effected by the assessee-company. More particularly, the ld.CIT(A) in the case of RKIT, to whom the assessee has paid a sum of Rs.2 crores for acquiring the overseas rights. The ld.CIT(A) has proceeded on the assumption that the contracts as entered into by the assessee-company were not genuine. Such assumption was on the basis that the assignment agreement was executed on a plain-paper and termination agreement was executed on a stamp-paper. Under the Contract Act, there is no distinction between a contract executed on plain-paper and executed on a Stamp-paper. Both the contracts are enforceable under the Contract Act. Any non-payment of the stamp duty attracts the provisions of the respective Stamp Act. The authorities have not given any finding as to how this contract is the sham transaction who have executed the same. Under these facts, we are unable to agree with the view of the authorities below that the transactions were sham or otherwise not for business purpose. Therefore, respectfully following the ratio laid down by the Hon'ble Apex Court in the case of CIT vs. Smifs Securities Ltd.(supra) and the Hon'ble Delhi High Court in the case of Avera T & D India Ltd. vs. DCIT(supra), we are of the view that the assessee is eligible for ITA Nos. 2373/Ahd/11 & 1088/Ahd/14 (D. B. Corp. Ltd.) A.Y. 2008-09 & 2006-07 -3- depreciation on goodwill as claimed and this addition made on this count is hereby directed to be deleted. Thus, this ground of assessee's appeal is allowed."
Learned Departmental Representative fails to pinpoint any distinction on facts or law in the two assessment years in question. We thus accept assessee's instant substantive ground and direct the Assessing Officer to delete the impugned disallowance.
4. Learned counsel representing assessee states thereafter that its second substantive ground averring that both the lower authorities have erred in restricting set off of unabsorbed depreciation as per returned income of Rs.84,99,417/- to that as per assessed income of Rs.16,58,588/- in their respective orders. He then submits that this substantive ground is consequential to the first one which stands already accepted. Learned Departmental Representative is fair enough in not disputing the same. We thus order that the second substantive ground is rendered infructuous in view of our findings in assessee's favour in relation to first substantive ground.
5. The assessee's third substantive ground challenges correctness of both the lower authorities' action disallowing stamp duty charges of Rs.1,23,72,972/- paid for increase in authorized share capital by treating it as capital expenditure. We notice that the Assessing Officer as well as the CIT(A) follow hon'ble apex court's decision in Brook Bond India vs. CIT 225 ITR 798 (SC). Learned counsel submits that the assessee had actually incurred the impugned expenditure in furtherance to its object of increase in share capital through issuance of bonus shares already held allowable in another apex court's decision in CIT vs. GIC [2006] 156 Taxmann 96 (SC) after considering the abovestated case law. He however states very fairly that the assessee did not file its factual evidence of having incurred impugned expenditure in relation to issuance of bonus shares. We therefore remit the ITA Nos. 2373/Ahd/11 & 1088/Ahd/14 (D. B. Corp. Ltd.) A.Y. 2008-09 & 2006-07 -4- issue back to the Assessing Officer for afresh decision after affording adequate opportunity to assessee enabling it to produce necessary evidence proving issuance of bonus shares. This ground shall be treated as allowed for statistical purposes.
6. The assessee's last substantive ground assails both the lower authorities' action in denying it credit of surcharge and education cess paid on MAT at the time of computing tax liability of the impugned assessment year after holding that both of them are in the nature of charge on tax instead of tax itself paid u/s. 115JB of the Act to be eligible for tax credit. Learned counsel representing assessee makes us to read Section 2(43) r.w.s. 115JAA, pages 48 to 50 of the paper book along with computation in pages 53 and 87, Form ITR-6 for the impugned assessment year and blank ITR-6 in assessment year 2012 in support of assessee's plea. Learned Departmental Representative strongly supports the CIT(A)'s action under challenge. We notice in this factual backdrop that the very issue arose before this tribunal's co-ordinate bench in assessment year 2007-08 Wyeth Ltd. vs. ACIT ITA No.6682/Mum/2011 decided on 09.01.2015 wherein the same was decided against the Revenue with the following observations:
"4. Having considered the rival submissions as well as relevant material on record, we note that the authorities below held that the MAT credit is allowable against the tax liability inclusive of surcharge and cess and not the tax payable before the surcharge and cess. The assessee has relied upon the judgment of Allahabad High Court in the case of CIT Vs. Vacment India (349 ITR 304) wherein the Hon'ble High Court while considering the question of surcharge and education cess on tax payable has been calculated before allowing the credit of MAT u/s 115JAA held in para 5 to 7 as under:-
5. The only question which is raised pertains to the computation of tax in accordance with the modalities which are prescribed in the relevant form, ITR-6. IN so far as is material the relevant entries in the form (Part B-TTI) are as follows:
3. Gross tax payable (enter higher of 2c and 1) ITA Nos. 2373/Ahd/11 & 1088/Ahd/14 (D. B. Corp. Ltd.) A.Y. 2008-09 & 2006-07 -5-
4. Credit under section 115JAA of tax paid in earlier years (if 2c is more than 1) (7 of schedule MATC)
5. Tax payable after credit under section 115JAA [3-4]
6. surcharge on 5 7 Education cess, including secondary and higher education cess on (5+6)
8. Gross tax liability (5+6+7) 6 The aforesaid entries leave no manner of ambiguity in regard to the method of Computation of tax liability. Entry 3 requires computation of the gross tax payable. Under entry 4, credit is required to be given under section 115JAA of the Act of the tax paid in earlier years. Entry 5 requires a computation of the tax payable after credit under section 11BJAA of the Act. The matter is placed beyond doubt by the parenthesis, which indicates that tax payable under entry 5 is to be 'arrived at by deducting the credit under section 115JAA of the Act (under entry 3) from the gross tax payable (under entry 4). The surcharge 'is computed on the amount reflected in entry 5.
7 The Tribunal has noted that from the next assessment year, the assessment year 2012-13, the position was materially altered but, in the present case, since the dispute related to the assessment year 2011-12, the method of computation, as directed by the Commissioner (Appeals) was plainly in accordance with the methodology as provided in ITR-6.
'The Tribunal in confirming the order of the Commissioner (Appeals) has, hence, not committed any error. The appeal-will not give rise to any substantial question of law and is, accordingly, dismissed."
5. Thus it is clear that the Hon'ble High Court has taken into account the order of entries the form ITR-6 for the A.Y. 2011-12 in the said case and held that as per form ITR-6, the MAT credit has to be given against the gross tax payable exclusive of surcharge /cess and only after the MAT credit tax liability, the surcharge and cess has to be calculated for the purpose of working out the grand tax liability. We also find merit and substance in the alternative contention of the assessee that if the MAT credit is taken into account without including the surcharge and education cess then allowing the surcharge and education cess on the tax liability has to be calculated only after allowing the MAT credit. Alternatively, the amount of MAT credit should also include surcharge and education cess for the purpose of allowing the credit against the tax liability inclusive of surcharge and education cess. Therefore, the MAT as well as normal tax before allowing the MAT credit has to be taken on parity either exclusion of surcharge and education cess or inclusive of surcharge and education cess or inclusive of surcharge and education cess. Accordingly we set aside the orders of authorities below and direct the Assessing Officer to allow the MAT credit against the tax liability payable before surcharge and education cess or alternatively the amount of MAT credit should also be inclusive of surcharge and education cess and then allow the credit against the tax payable inclusive of surcharge and education cess."
ITA Nos. 2373/Ahd/11 & 1088/Ahd/14 (D. B. Corp. Ltd.)A.Y. 2008-09 & 2006-07 -6- It is therefore clear that the CIT(A)'s reasoning under challenge is not sustainable. We accordingly accept assessee's instant substantive ground and direct the Assessing Officer to finalize necessary computation. This former appeal ITA No.2373/Ahd/2011 is partly allowed.
7. We now advert to assessee's latter appeal ITA No.1088/Ahd/2014 preferred against the CIT-I, Ahmedabad's order dated 21.02.2014 passed u/s.263 of the Act.
8. We come to basic facts in this instant case. The assessee had filed its return on 27.12.2006 declaring income of Rs.36.06crores. The Assessing Officer framed a regular assessment on 24.12.2008 making disallowance of foreign travel expenses amounting to Rs.10.13lacs. He thereafter formed reasons to believe that the assessee's taxable income liable to be assessed had escape assessment. He accordingly reopened the above regular assessment on two grounds that although the assessee had invested Rs.70.08 crores in shares in the relevant previous year, it did not make any disallowance u/s.14A of the Act. His next issue to reopen the above assessment was on the ground that the assessee was not eligible for additional depreciation of Rs.1.99 crores over and above normal depreciation @80% on windfarm. The Assessing Officer thereafter framed the re-assessment in question on 30.12.2011 accepting assessee's explanation on both counts.
9. It is evident that learned CIT termed the above re-assessment to be erroneous causing prejudice to interest of the Revenue on the very two grounds forming subject matter of re-assessment. It emerges that the CIT has thereafter rejected assessee's objection to his revision show cause notice that the Assessing Officer had made all necessary enquiries during re-assessment in not disallowing the above two claims. The CIT however holds that the ITA Nos. 2373/Ahd/11 & 1088/Ahd/14 (D. B. Corp. Ltd.) A.Y. 2008-09 & 2006-07 -7- Assessing Officer had not conducted all due inquiries before accepting the above two claims. He then directs the Assessing Officer to make afresh assessment as under:
"8. I have considered the facts of the case and the submissions made by the ld. AR of the assessee. So far as the objection of the assessee against proceedings u/s 263 is concerned on the ground that action u/s 263 is not possible in cases where tile A.O. had already examined the issue, this proposal is palpably untenable for the reason that the power u/s 263 is intended to correct the wrong assessment made by the assessing authority. This is also not a case of two views on an issue since this is a matter of not applying the actual provisions of the Act with the facts of the case which has not been examined by the AO. The plea of the assessee that the AO had verified the claim of additional depreciation during the assessment proceedings is not substantiated from the assessment records. No enquiry was done by the AO regarding the admissibility of claim for additional depreciation made by the assessee. In this connection, reference is made to the decision of Delhi High Court in the case of GEE VEE Enterprises v. Addl. CIT (99 ITR 375), wherein after considering the decision of Supreme Court in the cases of Ram Pyari Devi Saraogi v C1T (67 ITR 84) and Smt. Tara Devi Agarwal v CIT (88 ITR 323), it was held that "the position and function of the Income-tax Officer is very, different from that of a Civil Court. The statements made in a pleading proved by minimum amount of evidence may be accepted by a Civil court in absence of any rebuttal, The Civil Court is neutral, It is simply given decision on the basis of the pleadings and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparent in the order but call for farther inquiry. It is his duty to ascertain the truth, of the facts, stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this context, It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an Inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct". Moreover, in the case of Malabar Industrial Co. Ltd. (243 ITR 83) the Supreme Court has clearly Spelt out that incorrect assumption of facts and incorrect application of law as also non application of mind will Satisfy the requirement of the order being erroneous, As per the provisions of section 263(1), any proceeding under the Income Tax Act and any order passed therein comes within the ambit of revision u/s 263. If the stand taken by the A.O. were final, then there was no need to have section 263 on the statute book at all. Such interpretation would render the section superfluous which could never be the intention of the legislature. Further, in Swarup Vegetable Products vs CIT, 187 ITR 412 (All.), it was held that it was beyond dispute that u/s 263 the Commissioner Joes have the power to set aside-the assessment order and send the matter for fresh assessment if he is Satisfied that further enquiry is necessary and that the impugned order is erroneous and prejudicial to the interests of revenue.ITA Nos. 2373/Ahd/11 & 1088/Ahd/14 (D. B. Corp. Ltd.)
A.Y. 2008-09 & 2006-07 -8- The Supreme Court has held in CIT vs Shree Manjunathsware Packing Products & Camphor Works, 231 ITR 53, that the revisional power conferred on the Commissioner u/s 263 is of wide amplitude. Hence, having regard to the judicial pronouncements on the subject, I am of the view that this objection of the AR is not maintainable.
9. Coming to the arguments on merits, firstly regarding invoking of provisions of section 14A, the assessee cannot just state that, there is no nexus between the expenses and earning of exempt income. It is a fact that the assessee engaged in the business of publishing News papers, has invested Rs.70.08 Crores in shares for which no separate accounts have been maintained. The assessee has also incurred interest and administrative expenses which are thus partly attributable, to the activity of investment in shares. It is also not necessary that the assessee actually earns exempt Income since the assessee has already deployed substantial funds as a ground work for earning exempt income during the year. In this regard, reliance is placed oil the decision of Special Bench of ITAT, Delhi in the ease of Cheminvest Ltd. v ITO (124 TTJ 577). Section 14A has been inserted by the Finance Act 2001 w.e.f 1.4.1962 with a view to curtail claim of expenditure which is retable to income which is not includable in total income. Such expenditure is therefore required to be quantified and disallowed while computing total income of the assessee. The provisions of Rule 8D which have been inserted. w.e.f 24.03.2008 can very well be applied in assessments passed after this date though the assessment years may be before that date. Rule 8D is a form of a method for quantification of expenditure which is relatable to earning of exempt income when the lessee .has itself not disallowed such expenditure in a proper manner. The said method given in Rule 8D(2)(i)/(ii)/(iii) can logically, be used to quantify the disallowance for the purpose of reference as it is a method and not a provision of the Act, It is thus obvious that when substantial investment has been made by the assessee in shares during the financial year and no separate accounts are maintained, expenditure attributable to the same must be disallowed as the same cannot be regarded as spent for the purpose of business. For this, reliance is placed on the decision of Calcutta High Court in the of CIT-III, Kolkata v RKBK Financial Services (P) Ltd. (32 Taxman.com 153).
10. Regarding the issue of additional depreciation on Wind farm the assessee's contention that it was eligible to claim additional depreciation as it had exercised the option as per Rule 5(1 A) is not found tenable, As per Rule 5(1 A) the depreciation u/s 32(1)(i) is to be calculated as per percentage specified in Appendix 1A. As per the proviso an 'undertaking specified u/s 32(1)(i) may opt for allowance of depreciation under Rule 5(1) r.w Appendix I, As per Appendix I, wind mills installed before 31.03.2012 are eligible for normal depreciation as per clause (xiii). It is therefore apparent that the exercise of an option to claim depreciation either as per Appendix I or IA relates to normal depreciation only. The rate of additional depreciation has been given in the section 32(l)(iia) itself which does not require reference to any rates of normal depreciation given either in Appendix I or IA, For claiming additional depreciation the actual provisions of section 32(l)(iia) are required to be satisfied irrespective of the option taken by the assesses for claiming normal deprecation. Moreover the wind term does not manufacture any article or thing as envisaged in section 32(1)(iia) and section 2(29BA). It is also seen that section 32(l)(iia) has been amended by Finance Act ITA Nos. 2373/Ahd/11 & 1088/Ahd/14 (D. B. Corp. Ltd.) A.Y. 2008-09 & 2006-07 -9- 2012 w.e.f 1.4.2013 to include the business of generation or generation and distribution of power. It is therefore, clear that in the present form the section will not be applicable for generation of power for AY 2006-07. The judicial decisions relied upon by the assessee in this regard were neither presented before the AO during assessment proceedings nor examined by him.
11. Considering the above facts and findings, it is amply clear that the AO has erred in not disallowing proportionate expenditure related to earning exempt income as per section 14A r.w.r 8D and also in allowing additional depreciation on wind farm. As a result thereof, there was substantial 'loss of revenue to the exchequer since the income of the assessee was assessed at a lower rate. Accordingly, it is held that the assessment order passed u/s 143(3) r.w.s 147 dated 30-12-2011 was erroneous and prejudicial to the interest of revenue, Hence, the said assessment for A.Y.2006-07 dated 30-12-2011 is cancelled and the AO Is directed to make fresh assessment of the total income of the assessee for the said assessment year, after allowing opportunity to the assessee as per law."
This leaves the assessee aggrieved.
10. We have heard both parties reiterating their respective stands. There can hardly by any dispute that hon'ble apex court's landmark decision in Malabar Industrial Co. Ltd. vs. CIT [2000] 243 ITR 83 (SC) terms lack of enquiry on an Assessing Officer's part to be a case of error causing prejudice to interest of the Revenue exigible to Section 263 revisional jurisdiction. We keep it mind the said legal backdrop to decide the instant issue. It emanates from Assessing Officer's re-assessment order that he decided both issues in assessee's favour thereby not making any disallowance. He first of all observed in respect of disallowance of interest and administrative expenses that Rule 8D is applicable only from assessment year 2008-09. Learned Departmental Representative fails to dispute hon'ble Bombay high court's decision to this effect in Godrej Boyce case 328 ITR page 1. Similar is the factual position regarding latter issue of additional depreciation. We notice that the Assessing Officer has discussed the issue at length in his reassessment dated 30.12.2011 before expressing agreement with assessee's claim of additional depreciation. We therefore are of the opinion that the CIT's former reason holding the Assessing Officer to have not conducted all ITA Nos. 2373/Ahd/11 & 1088/Ahd/14 (D. B. Corp. Ltd.) A.Y. 2008-09 & 2006-07 - 10 -
due inquiries itself is not sustainable in view of the abovestated case law. We therefore restore the above re-assessment and reverse the CIT's order under challenge. ITA No.1088/Ahd/2014 is accepted.
11. This assessee's former appeal ITA No.2373/Ahd/2011 is partly allowed and latter appeal ITA No.1088/Ahd/2014 is allowed.
[Pronounced in the open Court on this the 23rd day of March, 2017.] Sd/- Sd/-
(N. K. BILLAIYA) (S. S. GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad: Dated 23/03/2017
True Copy
S.K.SINHA
आदे श क त ल प अ े षत / Copy of Order Forwarded to:-
1. राज व / Revenue
2. आवेदक / Assessee
3. संबं धत आयकर आयु!त / Concerned CIT
4. आयकर आय!
ु त- अपील / CIT (A)
5. )वभागीय ,-त-न ध, आयकर अपील य अ धकरण, अहमदाबाद /
DR, ITAT, Ahmedabad
6. गाड3 फाइल / Guard file.
By order/आदे श से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण, अहमदाबाद ।